PA Supreme Crt: No Production, No Payments…Doesn’t Cancel Lease
Here’s an interesting lawsuit in Pennsylvania with potential ramifications for both landowners and drillers. In 2013 a landowner in Warren County, PA filed a lawsuit against Mitch-Well Energy claiming the company had abandoned its leases (and its rights) by not producing marketable quantities of natural gas from several conventional wells. The company had also not paid a required annual fee in lieu of production royalties. For 18 years! Several lower courts ruled in favor of the landowner. Last week the PA “Supreme” Court (we use that term loosely) reversed the lower court rulings and said in this case, not producing gas for 18 years and not making any payments to the landowners during that time is not (yet) enough to claim the energy company has abandoned its lease rights.
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Chesapeake Energy is holding out an olive branch to Pennsylvania landowners–the offer of settling a years-old class action lawsuit for $30 million–as reparations for shafting PA landowners out of royalties. But–and it’s a big but–Chesapeake is also snatching the olive branch away unless/until the PA Attorney General’s office resolves its separate lawsuit against Chesapeake for the same thing. No deal with the AG? No final settlement. Chesapeake’s lawyer calls it “global peace”–which we find amusing. The lawyer said “we need global peace,” meaning both lawsuits must be settled. His comment reminds us of the recent song blaring on the radio over the holidays called, “My Grown-Up Christmas List.” Yeah, don’t we all want “global peace.” Chesapeake’s proffered deal will give the average PA leaseholder (some 14,000 of them) a one-time $2,140 payment–adjusted up or down for the size of their acreage. Frankly, it’s chump change. The big concession by Chesapeake in the proposed deal is that it gives landowners the right to clarify the terms of their leases: “Every Chesapeake lessor will get to pick how their royalties are paid going forward.” Landowners can choose to continue letting Chesapeake market the gas outside of the region (theoretically for a higher price) but requiring the landowner to share in post-production expenses with Chessy as has been the case, OR landowners can rework the lease so there are no post-production expenses deducted. In the second case royalties will be based on the local price of gas in that landowner’s area (typically in the basement). It’s a tough decision. So, landowners got shafted in the past, but the past is the past. Going forward, let’s not get shafted any more. That’s what this proposed deal seems to boil down to. Oh, and throw in a few grand as the cherry on top. The billion dollar question is whether or not the AG’s office will go for it. The AG’s office is signaling it may settle, IF Chesapeake picks a number higher than $30 million as a settlement number…
Pennsylvania’s landowners, at least many of them, continue to be angry about getting low–or no–royalty checks. That’s not what they signed up for when leasing their property. A group of 200+ landowners packed a meeting last week in Wyoming County, PA to discuss the situation, and what to do next. The meeting was organized by the Pennsylvania Chapter of the National Association of Royalty Owners (NARO). One distinct possibility raised at the meeting: force Chesapeake (and others) into arbitration. NARO’s approach is to push for legislation, specifically PA House Bill (HB) 557 (see 
Is the Lucky Five counties in New York that will see drilling now the Lucky Four? You may recall a few weeks ago the New York Times, using an unnamed source inside Gov. Andrew Cuomo’s administration (cough *Andy* cough), floated a “trial balloon” plan that will allow high volume hydraulic fracturing, i.e. fracking, for a limited number of permits in five Southern Tier counties for a two-year period: Broome, Chenango, Chemung, Steuben and Tioga (
eCORP International and the Tioga County (NY) Landowners Group, also known as Southern Tier Energy Partners (STEP), released details of their new deal to lease 135,000 acres in Tioga County, NY with an eye to using LPG waterless fracking (press release below). It is an interesting deal—not at all typical of the usual leases between drillers and landowners. Perhaps it’s the way of the future in a low commodity gas price environment?
The anti-drilling crowd is about to be tested as to their true reasons for opposing shale gas drilling, and it will happen in leftist paradise—New York State.
The Utica Landowner Group of eastern Ohio has just cut a deal with Antero Resources for what is believed to be the highest amount paid yet for a lease deal: $5,900 per acre for a signing bonus, and 21 percent royalties. The deal covers land in Belmont, Monroe and Noble counties in Ohio.